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Five Trailblazing States Consider Legislation to Capture Big Rx Savings Using Canadian Reference Rates

February 1, 2021/in Prescription Drug Pricing Hawaii, Maine, North Dakota, Oklahoma, Rhode Island Blogs, Featured News Home Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Jennifer Reck and Trish Riley

Burdened by high US drug prices that average 218 percent more than in Canada, innovative states across the country are exploring a range of approaches to give their residents the same access to affordable drugs Canadians have. To date, six leading states have passed laws that enable them to import drugs from Canada pending federal approval of their programs. Now, a second set of trailblazing states are exploring an alternative approach that does not require federal approval – importing Canadian drug prices.

Lawmakers in five states (HI, ME, OK, ND, and RI) have introduced or pre-filed bills based on the National Academy for State Health Policy’s (NASHP) model legislation to establish international reference rates using Canadian pricing.

Establishing payment rates for hospitals’ and providers’ services is common to ensure access to affordable care. The NASHP model extends that practice to prescription drugs, giving states a powerful tool to limit what payers within a state will pay, without running afoul of patent law by setting prices.

What is international reference rate legislation?

International reference rate legislation authorizes a state’s department of insurance to establish international reference rates for the costliest drugs in that state. The department determines the reference rates based on those drugs’ prices in Canada’s four largest provinces. The lowest price would become the legal upper payment limit for those drugs for participating purchasers in the state.

A savings analysis NASHP facilitated for one state considering this legislative approach, showed annual savings of more than $32 million for just 35 drugs purchased by state employees alone. States are proposing setting reference rates for up to 250 drugs for all commercial payers, including Medicare advantage plans (Medicaid and traditional Medicare would be excluded), so total savings would far exceed that initial estimate.

Under the model legislation, any savings generated must be shared with consumers through mechanisms left to the discretion of a state. Options may vary by payer, ranging from reducing premiums for commercial payers, maintaining or expanding access to Medicaid services, and avoiding tax increases for public payers.

Oklahoma state Sen. Greg McCortney identified the potential for savings as key. “I do not believe that we can fix our broken health care system until we address the cost of care,” he said. “This bill, once fully implemented, should reduce insurance premiums for every person in the state by hundreds of dollars each year.”

The model law’s implementation process is designed to be easy for a state to administer and does not require costly infrastructure at a time when states are burdened by the pandemic and budgetary restraints. As a proxy for all commercial payers, the bill uses a state’s employee health plan to identify the costliest 250 drugs, determined by drug price times utilization.

The state employee health plan shares the list of 250 drugs with the Department of Insurance.
The department then establishes references rates by comparing publicly available data on drug prices in Canada’s four most populous provinces. The lowest price becomes the reference rate for payers within the state.
No commercial payer could pay more than the reference price established by the state’s department of insurance, and a manufacturer that withdrew a drug or refused to negotiate in good faith would be subject to significant penalties.

As states move forward in their legislative sessions, states are adapting NASHP’s reference rate model and making it their own. They’re exploring variations in the roles their agencies would play, as well as possibly limiting the number of referenced drugs to a smaller group that would have maximum impact.

NASHP Model State Legislation to Prohibit Unwarranted Facility Fees

August 24, 2020/in Model Legislation and Resources Consumer Affordability, Health System Costs, Hospital/Health System Oversight, Making the Case for Action, State Employee Health Plans /by NASHP Staff

Model Act Summary: This model legislation prohibits site-specific facility fees for services rendered at physician practices and clinics located more than 250 yards from a hospital campus. It also prohibits all service-specific facility fees for typical outpatient services that are billed using evaluation and management codes, even if those services are provided on a hospital campus.

The act requires annual reporting of facility fees charged or billed by health care providers, delegates implementation authority to a relevant state agency, and provides three enforcement mechanisms:

An annual facility fee audit by the relevant state agency;
A private right of action for consumers; and
Administrative financial penalties against health care providers for violations.

(1) Definitions. As used in this section,

(A) “Campus” means: (i) a hospital’s main buildings; (ii) the physical area immediately adjacent to a hospital’s main buildings and other areas and structures that are not strictly contiguous to the main buildings but are located within two hundred fifty (250) yards of the main buildings, or (iii) any other area that has been determined on an individual case basis by the Centers for Medicare & Medicaid Services to be part of a hospital’s campus.

(B) “Facility fee” means any fee charged or billed by a health care provider for outpatient services provided in a hospital-based facility [or freestanding emergency facility] that is: (i) Intended to compensate the health care provider for the operational expenses of the health care provider, (ii) separate and distinct from a professional fee; and (iii) regardless of the modality through which the health care services were provided.

(C) “Freestanding emergency facility” means an emergency medical care facility that is licensed under [reference to code section that regulates freestanding emergency facilities], and shall not include urgent care clinics.

(D) “Health system” means: (i) A parent corporation of one or more hospitals and any entity affiliated with such parent corporation through ownership, governance, membership or other means, or (ii) a hospital and any entity affiliated with such hospital through ownership, governance, membership or other means.

(E) “Hospital” is a hospital licensed under [code section for hospital licensure.

(F) “Hospital-based facility” means a facility that is owned or operated, in whole or in part, by a hospital where hospital or professional medical services are provided.

(G) “Professional fee” means any fee charged or billed by a provider for professional medical services provided in a hospital-based facility.

(H) “Health care provider” means an individual, entity, corporation, person, or organization, whether for profit or nonprofit, that furnishes, bills or is paid for health care service delivery in the normal course of business, and includes, without limitation, health systems, hospitals, hospital-based facilities, [freestanding emergency facilities,] and urgent care clinics.

(2) Limits on Facility Fees.

(A) Site-specific limits. No health care provider shall charge, bill, or collect a facility fee, except for: (i) services provided on a hospital’s campus; (ii) services provided at a facility that includes a licensed hospital emergency department[; or (iii) emergency services provided at a licensed freestanding emergency facility].

(B) Service-specific limits. Notwithstanding subsection (A) and whether or not the services are provided on a hospital’s campus, no health care provider shall charge, bill, or collect a facility fee for (i) outpatient evaluation and management services; or (ii) any other outpatient, diagnostic, or imaging services identified by the [Department/Commission] pursuant to subsection (C).

(C) Identification of services. The [Department/Commission] shall annually identify services subject to the limitations on facility fees provided in subsection (B) that may reliably be provided safely and effectively in settings other than hospitals.

(3) Reporting. Each hospital and health system [and freestanding emergency facility] shall submit a report annually to [the Department/Commission] concerning facility fees charged or billed during the preceding calendar year. The report shall be in such format as [Department/Commission] may specify. The [Department/Commission] shall publish the information reported on publicly accessible website designated by the [Department/Commission].

At the discretion of the state pursuing this model, Section 4 (the following language detailing reporting requirements) could be removed from legislation and instead be used to inform implementing regulations promulgated under the model act.

(4) Reporting Requirements. Such report shall include, without limitation, the following information:

(A) The name and full address of each facility owned or operated by the hospital or health system [or freestanding emergency facility] that provides services for which a facility fee is charged or billed;

(B) The number of patient visits at each such hospital-based facility [or freestanding emergency facility] for which a facility fee was charged or billed;

(C) The number, total amount, and range of allowable facility fees paid at each such facility by Medicare, Medicaid, and private insurance;

(D) For each hospital-based facility and for the hospital or health system as a whole [or freestanding emergency facility], the total amount billed and the total revenue received from facility fees;

(E) The top ten procedures or services, identified by current procedural terminology (CPT) category I codes, provided by the hospital or health system [or freestanding emergency facility] overall that generated the greatest amount of facility fee gross revenue, the volume each of these ten procedures or services and gross and net revenue totals, for each such procedure or service, and, for each such procedure or service, the total net amount of revenue received by the hospital or health system [or freestanding emergency facility] derived from facility fees;

(F) The top 10 procedures or services, identified by current procedural terminology (CPT) category I codes, based on patient volume, provided by the hospital or health system [or freestanding emergency facility] overall for which facility fees are billed or charged [based on patient volume], including the gross and net revenue totals received for each such procedure or service;

(G) Any other information related to facility fees that the [Department/Commission] may require.]

(5) Regulatory Authorization. The [Department/Commission] may promulgate regulations necessary to implement this section, specify the format and content of reports, and impose penalties for noncompliance consistent with the department’s authority to regulate health care providers.

(6) Enforcement.

(A) Any violation of any provision of this act shall constitute an unfair trade practice pursuant to [reference to code section for state unfair trade practices statute].

(B) A health care provider that violates any provision of this act or the rules and regulations adopted pursuant hereto shall be subject to an administrative penalty of not more than $1,000 per occurrence.

(C) The [Department/Commission] or its designee may audit any health care provider for compliance with the requirements of this section. Until the expiration of [four (4)] years after the furnishing of any services for which a facility fee was charged, billed, or collected, each health care provider shall make available, upon written request of the [Department/Commission] or its designee, copies of any books, documents, records, or data that are necessary for the purposes of completing the audit.

An Act to Ensure Financial Transparency in Hospitals and Health Care Systems

July 31, 2020/in Hospital/Health System Oversight Consumer Affordability, COVID-19, Health System Costs, Hospital/Health System Oversight, Making the Case for Action, Population Health /by NASHP Staff

Summary

Hospitals provide critically important services and play a central role in assuring the integrity of the health care system in the state. Standardized, objectively assessed information regarding finances enables the state and the public to evaluate the viability of the health system, identify strengths and weaknesses, to allow for appropriate executive and legislative actions to be taken to ensure the public’s continued access to care.

This bill requires hospital and health care systems to annually submit to the state Department of [INSERT NAME OF RESPONSIBLE AGENCY] certain financial information needed to provide transparency in the fiscal health of the state’s health system. This requirement is subject to enforcement with a monetary penalty.

The Agency is required to promulgate rules to implement the provisions of this authority. The Agency is also required to annually report to the legislature on the findings it makes regarding the vitality of the state’s hospitals and health system, based on the data collected pursuant to this statutory language.

1. Definitions.

A. Agency. [Insert name of state agency to be vested with responsibility for implementation of this statute.]

B. Hospital. “Hospital” means an institution that primarily provides to inpatients, by or under the supervision of physicians, diagnostic and therapeutic services for medical diagnosis, treatment and care of injured, sick or disabled persons or rehabilitation services for the rehabilitation of injured, disabled or sick person. “Hospital” includes psychiatric hospitals.

C. Health care system. “Health care system” means an organization that includes at least one hospital and at least one group of physicians that provides comprehensive care, including primary and specialty care, that are connected with each other and with the hospital through common ownership or joint management.

D. Hospital system. “Hospital system” means an organization that includes two or more hospitals that are connected with each other through common ownership or joint management.

E. Provider. “Provider” means a practitioner or facility licensed, accredited or certified to perform specified health care services consistent with state law.

F. Payer. “Payer” means a health maintenance organization, managed care organization, insurance company, management services organization, or any other entity that pays for or arranges for the payment of any health care or medical care service, procedure or product.

G. Uncompensated care. “Uncompensated care” means the costs of services provided to patients who are uninsured and are unable to pay for the services they receive and bad debt associated with cost-sharing for which patients receiving care are responsible but have not paid, as well as the cost of care provided to patients with insurance but which were not deemed covered services and which the patients have not paid. Uncompensated care does not include the difference between charges and payments by public programs, such as Medicare and Medicaid.

2. Required filings.

A. The agency shall collect data necessary to facilitate transparency in health care prices and costs, and information that will inform assessments of the financial health of the state’s hospitals and health care delivery system, from any facilities defined as acute and non-acute hospitals at XXXX and licensed under XXX_XXX to provide care in the state. [CROSS REFERENCE STATE MEDICAID DEFINITION OF ACUTE AND NON-ACUTE CARE HOSPITALS]

B. The agency shall promulgate regulations necessary to ensure uniform reporting by any hospital or health care system operating in the state, of consolidated hospital revenues, charges, costs and prices of health care services, as well as other data the agency deems necessary to facilitate transparency in health care prices and costs or the financial health of the state’s hospitals and health care system. The agency may require hospital systems to also file similar data at the level of the individual hospital affiliates of the system, and any other affiliated entities, non-institutional providers and provider organizations.

C. The uniform reporting requirements shall be defined in a manner that will enable the agency and the public to identify on a provider-specific basis, statewide and regional cross-industry comparisons and trends in the cost and price of health care services provided by acute and non-acute hospitals and affiliated entities across the state.

D. The uniform reporting requirements shall include, but are not limited to, gross and net patient revenues by payer, other income, operating costs, other expenses, investment income and other non-patient services revenues, assets, liabilities, fund balances, detailed reporting of revenues and expenses incurred for providing services to patients who qualify for financial assistance and for patients who are not expected to pay, and utilization statistics, as specified by the agency. Submission of audited financial statements shall be required.

E. Uniform reporting requirements shall include an accounting of revenues received by any entity subject to this statute pursuant to the Coronavirus Aid, Relief, and Economic Stability Act of 2019, Public Law 116-136, and any other COVID-19 federal relief funding. This accounting must include both reporting on the amount of funds received, the source of those funds and the uses of those funds.

F. Uniform reporting requirements shall include an accounting of other revenues received by any entity subject to this statute pursuant to an appropriation of the state, private donations, as well as grants made by federal and state governments, and grants made by private foundations, meant to mitigate the economic impact of the coronavirus on the state’s hospitals and related entities.

G. The agency may also collect such data it deems necessary to facilitate efforts to better protect the public’s interest in monitoring the financial condition of hospitals.

3. Form of filing.

A. Required data may be obtained from documents such as, but not limited to, audited financial statements, leases, contracts, debt instruments, accounting systems and for the system, hospital, and related entities.

B. A uniform system based on a standardized accounting template shall be specified in rule for each type of hospital subject to this statute. The agency shall develop the reporting template after considering existing accounting systems and reporting utilized by hospitals in the state and any standardized chart of accounts developed by a national association for such providers that reflects generally accepted accounting principles.

1. 1. The standardized accounting format utilized by the agency for purposes of reporting required by this section shall in no way be construed to require any provider to adopt a uniform accounting system.

C. Filings shall be made on forms developed and adopted by the agency and based on the uniform system of financial reporting.

D. Filing deadlines.

1. 1. Filing of required information must be made within 120 days of the end of the reporting entity’s fiscal year.
  2. The agency may require quarterly filings of interim financial information on a schedule and in a format prescribed by duly authorized rules.

E. Filings must be accompanied by an attestation of validity provided by an official authorized to make such representations on behalf of the filing entity.

4. Research, analyses, studies and reports.

A. The agency shall investigate on an on-going basis the financial status of the state’s hospitals. This shall include but is not limited to analyses of financial condition, resources, and performance of the hospital sector, trends in hospital prices and costs over time and across similar types of hospitals, the impact of uncompensated care on hospitals and related entities, cross-subsidization of services within hospitals and its effect on costs and prices for care, the use of emergency relief funds made in response to the COVID-19 pandemic, provided by the federal and state governments.

B. The agency shall issue reports annually reflecting the financial status of the state’s hospitals. Data released publicly shall be released only in aggregate form. Reports shall include examination of any hospital system that analyses of financial data by the agency reveal to be in financial distress, including those at risk of closure or ability to continue to provide essential health care services, but information released publicly shall not individually identify the hospital or hospitals found to be distressed.

C. The approach used by the agency for collecting and analyzing the data used to report on the financial condition of the state’s hospitals shall be transparent, with methods disclosed to all relevant providers and provider organizations, as well as to the public.

D. Prior to publication of an annual report, the reporting entities will be given an opportunity to review and comment on any provider-specific information included in the report.

E. Annual reports shall be presented to the Legislature in February of each year.

F. Reports shall be publicly reported by publication on the agency’s website and made available upon request, in hard copy form, at a cost allowed by law.

5. Inspections and audits; violations; penalties and fines; enforcement.

A. The agency has the authority to inspect and audit the financial records of individual and corporate ownership, including books and records of related entities with which a reporting entity has had transactions, to determine compliance with the requirements of this chapter.

1. Upon presentation of written request for inspection, the reporting health care entity shall make available to the agency for inspections, copying, and review all books and records relevant to the determination of compliance with the provisions of this chapter.
2. Any entity that refuses to file a report, fails to report in a timely manner, files a false report or files an incomplete report and following notification of deficiency in reporting by the agency, fails to timely file a complete report, or fails to provide documents or records requested by the agency in accordance with the provisions of this chapter shall be subject to a fine not to exceed $1,000 (one-thousand dollars) per day for each day in violation, to be imposed and collected by the agency.
3. The agency may adopt rules that allow for a one-time extension of any deadline for timely filing or production of documents and records, if a showing of good cause is made.
4. Any entity that refuses to file a report, fails to report in a timely manner, files a false report or files an incomplete report and following notification of deficiency in reporting by the agency, fails to timely file a complete report, or fails to provide documents or records requested by the agency in accordance with the provisions of this chapter shall be referred to the appropriate licensing board, which shall take appropriate action against the entity.
5. Notwithstanding any other provisions of this chapter, a reporting entity alleging that a factual determination made by the agency is incorrect shall bear the burden of proof to demonstrate that such determination is not supported by a preponderance of the evidence in the record. The burden of proof remains with the hospital in all cases involving administrative agency action.

An Act to Protect [Name of State] Consumers from Unsupported Price Increases on Prescription Drugs

July 28, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

Section 1. Statement of Legislative Intent; Purpose

The purpose of this Chapter is to protect the safety, health and economic well-being of [Name of State] people by guarding them from the negative and harmful impact of unsupported price increases for prescription drugs. In enacting this Act, the legislature finds that:

1) Access to prescription drugs is necessary for XXXXX people to maintain or acquire good health;

2) Unsupported price increases negatively impact the ability of XXXXX people to obtain prescription drugs and thereby endanger the health and safety of XXXXXX people to maintain or acquire good health;

3) Unsupported price increases for prescription drugs threaten the economic well-being of XXXXXX people and endanger their ability to pay for other necessary and essential goods and services including housing, food and utilities;

4) Unsupported price increases for prescription drugs contribute significantly to a dramatic and unsustainable rise in health care costs and health insurance that threaten the overall ability of XXXXXX people to obtain health coverage and maintain or acquire good health;

5) Unsupported price increases for prescription drugs contribute significantly to rising state costs for health care provided and paid for through a) state-funded medical assistance programs for XXXXX people who are older, living with disabilities or have low incomes; and b) health insurance programs for public employees, including employees of the state, municipalities and counties, school districts, institutions of higher education, and retirees whose health care costs are funded by public programs, thereby threatening the ability of the state to fund those programs adequately and further threatening the ability of the state to fund other programs necessary for the public good and safety, such as public education and public safety;

6) Analysis of the increase in prices charged by manufacturers of prescription drugs demonstrates that many price increases for high-cost and high-volume prescription drugs are not supported by adequate evidence of improved clinical benefit or by significant increase in costs to the manufacturer related to the production or sale of the product; and

7) Based on findings (1) through (6) the legislature finds that unsupported price increases for prescription drugs threaten the safety and well-being of XXXXXX people and find it is necessary to act in order to protect XXXXXX people from the negative impact of unsupported price increases.

Section 2. Definitions

(a) “Prescription Drug” has the same meaning stated in [Cite to State’s Pharmacy Act]

(b) “Unsupported Price Increase” is an increase in price for a Prescription Drug for which there was no, or inadequate, new clinical evidence to support the price increase. In order to determine whether a price increase for a Prescription Drug is unsupported by new clinical evidence, the state shall utilize and rely upon the analyses of Prescription Drugs prepared annually by the Institute for Clinical and Economic Review (ICER) and published in its annual Unsupported Price Increase Report.

(c) “Identified Drug” is any Prescription Drug that has at any time been identified as having an Unsupported Price Increase

(d) “Wholesale Acquisition Cost” has the meaning stated in 42 U.S.C. § 1395w-3a.

(e) “Consumer Price Index” means the Consumer Price Index, Annual Average, for All Urban Consumers, CPI-U: US City Average, All items, reported by the United States Department of Labor, Bureau of Labor Statistics, or its successor or, if the index is discontinued, an equivalent index reported by a federal authority or, if no such index is reported, “Consumer Price Index” means a comparable index chosen by the Bureau of Labor Statistics.

Section 3. Penalty Imposed

(a) A penalty shall be assessed on the sales within the state of Identified Drugs and payable by the manufacturers of the Identified Drugs. The penalty shall be calculated as described in subsection 3(b) below.

(b) The penalty in any calendar year shall equal 80 percent of the difference between the revenue generated by sales within the state of the Identified Drugs and the revenue that would have been generated if the manufacturer had maintained the Wholesale Acquisition Cost from the previous calendar year, adjusted for inflation utilizing the Consumer Price Index.

(c) In order to be subject to the penalty a manufacturer must have at least $250,000 in total annual sales within the state in the calendar year for which the tax is assessed.

(d) Within sixty (60) days of the annual publication by ICER of the Unsupported Price Increase Report, the Tax Assessor shall identify the manufacturers of Identified Drugs. The Tax Assessor shall notify each manufacturer that sales within the state of Identified Drugs shall be subject to the penalty assessed in this Section for a period of two calendar years following the Identified Drug’s appearance in the annual publication by ICER.

(e) Such penalty shall be collected annually. Any manufacturer notified by the assessor pursuant to subsection (d) of this section shall submit to the Tax Assessor a return on a form prescribed and furnished by the Tax Assessor and pay the penalty by the XXth day of XXXXX for the previous calendar year.

(f) The form described in subsection (e) above shall contain information including but not limited to:

The total amount of sales of the Identified Drug within the state
The total number of units sold of the Identified Drug within the state
The Wholesale Acquisition Cost of the Identified Drug during the tax period and any changes in the Wholesale Acquisition Cost during the calendar year
The Wholesale Acquisition Cost during the previous calendar year
A calculation of the penalty owed
Any other information that the Tax Assessor determines is necessary to calculate the correct amount of the penalty owed

(g) The failure by any manufacturer to file the return required by subsection (e) shall result in an additional penalty of 10 percent or $50,000, whichever is greater.

Section 4. Use of Revenue

(a) Revenue generated as a result of the penalty described in Section 3 above must be segregated into a separate fund and made available to the Superintendent of Insurance to offset costs to consumers. The Superintendent of Insurance may work in cooperation with other state agencies to determine the most effective method of optimizing the consumer benefit.

(b) Upon request from the Tax Assessor, the Superintendent of Insurance may make funds generated as a result of the penalty available to the Tax Assessor for the purpose of ensuring sufficient resources are available to 1) assess and collect the penalty; 2) audit manufacturers that are required to submit returns pursuant to Section 3(f) above; and 3) defend appeals from manufacturers. The Superintendent of Insurance may grant such request only upon finding that there will be no significant negative impact on the availability of funds to provide the consumer impact described in subsection (a) above.

(c) The Superintendent of Insurance shall on an annual basis submit a report to the legislature describing 1) the amount of revenue that had been generated in the previous year on account of the penalty segregated by manufacturer and product; 2) the current amount available for use as a result of the tax; 3) how the tax revenue has been utilized to benefit consumers pursuant to subsection (a) above; and 4) funds made available to the Tax Assessor pursuant to subsection (b) above.

(d) Any revenue in excess of the administrative costs described in subsection (a) above

Section 5. Prohibition on Withdrawal of Prescription Drugs for Sale

(a) It shall be a prohibition of this Chapter for any manufacturer or distributor of an Identified Drug to withdraw that drug from sale or distribution within this state for the purpose of avoiding the penalty set forth in Section 3 above.

(b) Any manufacturer who intends to withdraw an Identified Drug from sale or distribution from within the state in order to avoid a penalty as described in Section 3 of this part shall provide a notice of withdrawal in writing to the Board of Pharmacy and to the Attorney General 180 days prior to such withdrawal.

(c) The Attorney General shall assess a penalty of $500,000 on any entity, including any manufacturer or distributor of an Identified Drug, that it determines has withdrawn an Identified Drug from distribution or sale in the state in violation of subsection (a) or (b) of this Section.

July 2020

A Model Act to License Pharmaceutical Representatives

July 20, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

Section 1. Statement of Legislative Intent; Purpose

Whereas pharmaceutical marketing impacts clinical decision-making, outcomes, and resource utilization;

Whereas marketing strategies may keep prescription drug prices high by aggressively marketing patented products to limit generic competition;

Whereas aggressive marketing of opioids fueled the opioid epidemic;

Whereas evidence-based prescribing can reduce health care costs and save lives;

Therefore, be it resolved that [State] will require Pharmaceutical Representatives to obtain a license to conduct business in [State]. Pharmaceutical Representatives must participate in professional education, including training on ethical standards, and Pharmaceutical Representatives must disclose information about the extent and nature of their interactions with health professionals as conditions of licensure.

Section 2. Definitions

For the purposes of this section, the following terms will have the following meanings:

(a) “Health care professional” shall mean any physician or other health care practitioner who

is licensed to provide health care services or to prescribe pharmaceutical or biologic products.

(b) “Pharmaceutical” means a medication that may legally be dispensed only with a valid prescription from a health care professional.

(c) “Pharmaceutical Representative” means a person who markets or promotes pharmaceuticals to health care professionals on behalf of a pharmaceutical manufacturer for a fee. Pharmaceutical representatives include pharmaceutical sales representatives and medical science liaisons.

Section 3. Licensure of Pharmaceutical Representatives

(a) License – Required.

(1) No person shall act as a pharmaceutical representative in [State] without first having obtained a pharmaceutical representative license.

(2) In order to become initially licensed, a pharmaceutical representative shall complete a professional education course as determined by the [State Agency responsible for professional regulation] prior to application for the license and affirm that this training was completed on the application for the license.

(3) To maintain a license, a pharmaceutical representative must complete minimum continuing education in accordance with subsection (e).

(b) License – Non-transferability. No transfer of ownership shall be allowed on any license issued under this section.

(c) License – Application. An application for a pharmaceutical representative license shall be made to the [State Agency responsible for professional regulation] on a form accessible at the [State Agency responsible for professional regulation] website, and shall include the following:

(1) The applicant’s full name, residence address, residence telephone number, business address and business telephone number;

(2) A description of the type of work in which the applicant will engage;

(3) The license fee;

(4) An attestation of professional education:

(A) In the case of an initial license, attest that the applicant has completed a professional education course in compliance with subsection (e); or

(B) In the case of a renewal, attest that the applicant has completed at least five hours of continuing professional education in the previous year in compliance with subsection (e);

(5) Proof that the applicant has paid any assessed penalties and fees; and

(6) Any other information that the [State Agency responsible for professional regulation] may reasonably require.

(7) Any changes made to the information submitted on the application or any material changes made to the licensee’s personal or businesses operations or to any information provided under this section must be reported, in writing, to the [State Agency responsible for professional regulation] within four business days of the change.

(d) License – Fee. The annual fee for a pharmaceutical representative license shall be $750.00.

(e) Professional education.

(1) The [State Agency responsible for professional regulation] shall establish by rule education requirements as a condition for an initial or a renewal pharmaceutical representative license. All pharmaceutical representatives shall complete a minimum of five hours of continuing professional education prior to renewing their license. The initial and continuing professional education must include training in ethical standards, whistleblower protections, laws and regulations applicable to pharmaceutical marketing, and other areas that the [State Agency responsible for professional regulation] shall designate by rule.

(2) Upon request, pharmaceutical representatives shall provide proof of completion of the professional education requirements to the [State Agency responsible for professional regulation].

(3) The [State Agency responsible for professional regulation] shall designate and publish a list of institutions that provide courses that meet the education requirements. The [State Agency responsible for professional regulation] shall also designate the courses that satisfy the education requirements. A professional education provider shall not be a pharmaceutical representative’s employer. Education providers must disclose conflicts of interests. Funding for education courses shall not be provided by the pharmaceutical industry or by a third-party funded by the pharmaceutical industry.

Section 4. Disclosure to State

(a) No later than June 1 of each calendar year, pharmaceutical representatives shall provide the following information from the previous calendar year, to the [State Agency responsible for professional regulation]:

(1) The aggregate number of times health care professionals in [State] were contacted;

(2) The specialties of the health care professionals contacted;

(3) The location and duration of contact, including telephone, in-person, and on-line contact;

(4) The pharmaceuticals promoted;

(5) Whether product samples, materials, or gifts of any value were provided to the health care professional;

(6) The value of any products, materials, gifts, or compensation provided;

(b) The [State Agency responsible for professional regulation] shall make this information publicly available on the [State Agency responsible for professional regulation] website in a manner in which individual health care professionals are not identifiable by name or other identifiers such as National Provider Identifiers.

(c) The [State Agency responsible for professional regulation] shall produce a public annual report to the legislature summarizing the disclosures and identifying trends. The report is due November 1 each calendar year.

(d) A model disclosure form may be issued to facilitate compliance with the disclosure requirements of this section.

Section 5. Disclosure to Health Care Professionals

(a) Pharmaceutical representatives must disclose the following information during each visit with a health care professional:

The wholesale acquisition cost of a prescription drug when the pharmaceutical representative provides information concerning the drug to the prescriber.
The names of at least three generic prescription drugs from the same therapeutic class, or if three are not available, as many are available for prescriptive use.

Section 6. Ethical Standards

(a) The [State Agency responsible for professional regulation] shall produce a list of ethical standards for pharmaceutical representatives that shall be incorporated into the rules and published on the [State Agency responsible for professional regulation] website. In addition to those rules, a pharmaceutical representative shall not:

(1) Engage in any deceptive or misleading marketing of a pharmaceutical product, including the knowing concealment, suppression, omission, misleading representation, or misstatement of any material fact;

(2) Use a title or designation that could reasonably lead a licensed health professional, or an employee or representative of a licensed health professional, to believe that the pharmaceutical detailer is licensed to practice medicine, nursing, dentistry, optometry, pharmacy, or other similar health occupation, in [State], unless the pharmaceutical detailer currently holds such a license; or

(3) Attend patient examinations without the consent of the patient.

Section 7. Enforcement

(a) Pharmaceutical representatives must display their license during each visit with a health care professional. Health care professionals that meet with a pharmaceutical representative not displaying a license may report the unlicensed pharmaceutical representative to the [State Agency responsible for professional regulation] for further action.

(b) Health care professionals who meet with a pharmaceutical representative not sharing the information required in Section 5(a) may report the pharmaceutical representative to the [State Agency responsible for professional regulation] for further action.

(c) Fine: Any person violating any of the provisions of this chapter shall be fined not less than $1,000 nor more than $3,000 for each offense. Every day such violation continues shall constitute a separate and distinct offense.

(d) License Suspension and Revocation: A violation of any of the provisions of this chapter may result in license suspension or revocation in accordance with [cite relevant State Statute]. No license suspended or revoked pursuant to this section shall be reinstated until all code violations related to the suspension or revocation have been remedied and all assessed penalties and fees have been paid. No person whose pharmaceutical license under this chapter is revoked for any cause shall be granted a license under this section for a period of two years from the date of revocation.

(e) Rules – The [State Agency responsible for professional regulation] shall have the authority to promulgate rules necessary to implement their respective powers and duties under this Article.

Q&A: A Model Act to License Pharmaceutical Representatives

July 20, 2020/in Model Legislation and Contracts, Prescription Drug Pricing Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by NASHP Staff

What is a pharmaceutical representative?

A pharmaceutical representative markets brand-name prescription drugs directly to health care professionals who decide whether or not to prescribe them. Pharmaceutical representatives include pharmaceutical sales representatives as well as more specialized medical science liaisons.

Why should states license pharmaceutical representatives?

A sales force focused on influencing health care professionals’ prescribing decisions should be subject to licensure, as are the health professionals they seek to influence.

The goal of a pharmaceutical representative is to increase prescribing for the product(s) they are marketing. Indeed, the pharmaceutical industry’s reimbursement model for their representatives incentivizes higher sales, not evidence-based sales. Pharmaceutical representatives actively work to influence clinical decision-making to increase their sales and may thereby impact clinical outcomes and resource utilization in ways contrary to the interests of patients and third-party payers. The role of pharmaceutical representatives in encouraging the over-prescribing of opioids is a key example and is the subject of ongoing litigation.*

Licensure creates the opportunity to establish and enforce professional and ethical standards for pharmaceutical representatives. Furthermore, understanding the extent of marketing activity by pharmaceutical representatives in a state, as well as the strategies and tactics they use, can enable a state to take further, informed action based on that information.

Isn’t direct-to-consumer advertising the real problem?

No – not as indicated by where the pharmaceutical industry is investing its marketing dollars.

Though direct-to-consumer advertising is a highly visible outlet for pharmaceutical marketing, the industry actually spends far more marketing directly to health care professionals versus consumers. In 2016, pharmaceutical companies spent $20.3 billion to market to providers versus $6 billion for direct-to-consumer marketing.*

What are the conditions of licensure?

To be licensed, National Academy for State Health Policy’s Model Act to License Pharmaceutical Representatives (link to web model law page) requires pharmaceutical representatives to pay an annual licensing fee and to undergo five hours of annual professional continuing education – including training in ethical standards, whistleblower protections, and laws and regulations applicable to pharmaceutical marketing. The continuing education program must be independent of industry funding. Pharmaceutical representatives must also disclose specific information about the extent and nature of their interactions with health care professionals. Finally, when in contact with health care professionals, pharmaceutical representatives must also disclose the wholesale acquisition cost of drugs they promote, as well as the names of up to three generic drug alternatives within the same therapeutic class, if available.

Doesn’t the federal government already do this with its Open Payments program?

Open Payments is a federal program enacted as part of the Affordable Care Act. It requires pharmaceutical manufacturers to report on payments to health care providers. The information on payments is made available in a public database searchable by provider name. While Open Payments increases transparency of payments made to individual health care professionals, questions have been raised by health care providers regarding the accuracy of the data reported.

In contrast to Open Payments’ focus on payments to individual providers, this model act enables direct oversight of pharmaceutical representatives, including the extent and focus of their marketing activity at the state level, through the establishment of a licensing program including ethical standards.

What state agencies are involved in implementing this model act to license pharmaceutical representatives?

Under the model law, the state agency responsible for professional licensure is tasked with:

Establishing and monitoring licensing of pharmaceutical representatives as well as collecting the information that pharmaceutical representatives must disclose;
Making that information publicly available in a manner that de-identifies providers; and
Providing an annual report to the state legislature that summarizes the information and identifies trends.

The state agency responsible for professional licensure must also certify which courses meet the continuing professional education requirement and may elect to contract with a public university for oversight of the continuing professional education component.

How is the state’s implementation and administration of the act funded?

This model act is self-funded through the income generated by the licensure fees. States with relatively smaller populations with proportionally smaller forces of pharmaceutical representatives may wish to explore increasing the $750 licensing fee, if necessary, to cover implementation costs.

How is this model act enforced?

Pharmaceutical representatives would be required to display their license during each in-person or virtual visit with a health care professional. Health care professionals who encounter pharmaceutical representatives who do not display a license or fail to provide the information required on the wholesale acquisition cost of the drug and generic alternatives would voluntarily report the pharmaceutical representative to the state agency responsible for professional licensure for further action. Failure to meet the provisions set force in the model act results in fines and the revocation of a pharmaceutical representative’s license.

*Kaiser Permanente Institute for Health Policy, “Drug Policy 101: Pharmaceutical Marketing Tactics,” January 2020, Available at: https://www.kpihp.org/wp-content/uploads/2020/02/drug_policy_pharmaceutical_marketing_101_FINAL.pdf, accessed June 14, 2020.

New NASHP Model Legislation Allows Buy-in into State Rx Purchasing Pools for Individuals and Businesses

February 3, 2020/in Policy Blogs, Featured News Home Administrative Actions, Model Legislation, Prescription Drug Pricing, State Rx Legislative Action /by Trish Riley and Jennifer Reck

States have considerable prescription drug purchasing power through their state employee health plans and other public purchasers. The National Academy for State Health Policy’s (NASHP) newest legislative model, State Purchasing Pool Buy-in, leverages this purchasing clout by creating a program that allows individuals and businesses to buy into the state’s drug benefit plan to lower costs for all.

To achieve this, the model authorizes non-state public employers, self-insured private employers, and insurance carriers who provide coverage to small groups or individuals to purchase drugs for their beneficiaries under the purchasing authority of the state. State governments are often one of the largest employers in many states, and this model allows additional participants to buy into the state purchasing pool to expand state government’s purchasing power.

By expanding the number of people buying prescriptions in a pool, states’ purchasing and bargaining powers grow to benefit both current state employee health plan enrollees and those who buy into the prescription purchasing pool. Notably, while health plan benefits can rise in cost when there is an increase in “sicker” enrollees, prescription drug pricing is different – the more covered lives the better as the rise in membership also boosts the plan’s ability to negotiate lower rates.

NASHP’s model legislation also creates a way to help uninsured and those with high-deductible plans by creating a consumer discount card program.

In the NASHP white paper outlining this new model – Proposal for a State Purchasing Pool for Prescription Drugs – NASHP legal consultants Erin Fuse Brown, MPH, JD, and Mark Hunter, MPH, JD, examine “purchasing pool” options available to states and explore legal landmines and how states can avoid them. This paper provides a roadmap for states to explore how to best implement a prescription purchasing pool.

NASHP has also released a new document, Model Pharmacy Benefit Manager Contract Terms, for states to use when contracting with pharmacy benefit managers (PBMs) to ensure lower costs and adequate oversight. This is an essential first step before expanding the state employee prescription drug plan’s purchasing power to include other participants in the state purchasing pool.

This new model is the latest initiative from NASHP’s Prescription Drug Pricing Center, funded with support from Arnold Ventures. In the coming months, NASHP will release a series of additional policy options and will continue to report on state efforts to implement new laws promoting drug price transparency, PBM oversight, importation, and drug affordability review boards.

Oregon and Connecticut Hold Hospitals Accountable for Meaningful Community Benefit Investment

August 29, 2019/in Policy Connecticut, Oregon Blogs Community Benefit, Cost, Payment, and Delivery Reform, Health Equity, Health System Costs, Hospital/Health System Oversight, Population Health, Social Determinants of Health /by Amy Clary and Elinor Higgins

Tax exemptions for nonprofit hospitals cost states billions of dollars in lost tax revenue each year. In return, hospitals are required to invest in activities and services that benefit their communities. Some states, including Oregon and Connecticut, are going beyond federal requirements by holding hospitals accountable for making meaningful investments in the community’s health and well-being that meet genuine community needs — determined by the community itself — and align with state health priorities.

Oregon and Connecticut are holding hospitals accountable, through legislation and Certificate of Need conditions, for making meaningful investments in their communities’ health that meet genuine needs determined by the community itself and also align with state health priorities.

Background

The Internal Revenue Service (IRS) defines certain hospital investments as community benefit activities. Examples include providing financial assistance to patients (also called charity care), covering shortfalls resulting from Medicaid participation, funding health professionals’ education programs, and subsidizing services such as neonatal intensive care and trauma services. Hospitals can also count “community health improvement services,” or hospital programs that don’t generate revenue, as community benefits.

Of particular interest to states seeking to bolster population health by improving their residents’ social and economic conditions, is the fact that hospitals can also count some “community building” activities toward their community benefit investments, although some experts have identified a need to clarify the process by which those activities are counted as community benefit. The IRS defines “community building” activities as activities that “protect or improve the community’s health or safety,” including investments in:

Housing (the IRS addressed these investments in a short update on Dec. 18, 2015);
Economic development;
Community support, such as child care and mentoring programs;
Environmental improvements, such as addressing air or water pollution or protecting the community from other environmental hazards; and
Leadership development, coalition building, community health improvement advocacy, or workforce development.

Some states — such as Oregon and Connecticut — are using the federal requirements for tax-exempt hospitals to invest in community benefit activities as a springboard to ensure robust and meaningful hospital investments that address the needs of the community.

Oregon

On June 25, 2019, Oregon Gov. Kate Brown signed HB 3076, which strengthens that state’s community benefits requirements in two ways:

It requires hospitals to expand the range of income levels that qualify for charity care; and
It establishes a minimum community benefit spending floor for nonprofit hospitals, set every two years by the Oregon Health Authority (OHA), in collaboration with the hospital or health system.

The law specifies that hospitals reduce to zero the cost to patients of medically necessary care for people whose incomes do not exceed 200 percent of the federal poverty level (FPL) guidelines. For people earning up to 400 percent of FPL, the law establishes a sliding scale – the hospital must reduce charges by at least 75 percent for people earning up to 300 percent of FPL, implement at least a 50 percent reduction for people earning up to 350 percent of FPL, and at least a 25 percent reduction for people earning under 400 percent of FPL. The law allows hospitals to seek reimbursement for those patient costs from other payers, such as those with third-party liability, and requires patients to share information to help hospitals collect payment from other payers.

This financial assistance standard is new for Oregon. Previously, state law did not mandate a minimum threshold that required hospitals to reduce eligible patients’ costs, although some hospitals had their own financial assistance policies.

Oregon HB 3076 defines “social determinants of health” as “the social, economic, and environmental conditions in which people are born, grow, work, live and age, shaped by the distribution of money, power and resources at local, national, and global levels, institutional bias, discrimination, racism, and other factors.”

In addition to the new standard for financial assistance, the law also holds hospitals accountable for investing in community benefits. The OHA must consider several factors when establishing the new community benefit spending floor, including:

The community needs identified by the community needs assessment (CHNA);
Community health improvement plans by regional Coordinated Care Organizations (CCOs);
Current and historical expenditures on community benefits;
The overall financial situation of the hospital; and
The hospital’s spending on social determinants of health.

This requirement would make Oregon the sixth state to require a minimum level of community benefits spending, and the only one to tailor the minimum level for each hospital or health system according to a methodology. Another innovative facet of the law is that it requires the state to consider the needs identified in the CHNA when establishing the spending floor. This represents a step toward holding hospitals accountable for tying their community benefits spending to identified community needs, which is not currently an IRS requirement.

The OHA will convene a workgroup to define the methodology used to determine the minimum spending floors, which will be subject to the rule-making process and take effect in January 2021. The spending floors for each hospital or health system will be made public, and enforcement of the provision will largely rely on public scrutiny.

The Oregon bill had strong support from some key state legislators, including bill sponsor state Rep. Andrea Salinas, who participated in extensive stakeholder engagement leading up to the bill’s passage. Additionally, the bill had the support of the Service Employees International Union (SEIU), a union of hospital and other employees. The success of the bill’s champions put the spotlight on Oregon as the OHA crafts and implements a groundbreaking methodology for establishing the minimum for community benefits spending.

Connecticut

Connecticut is using a different, more specific and short-term approach to increase the effectiveness of community benefits investments. In recent hospital mergers and acquisitions, Connecticut used the certificate of need (CON) process to ensure that community benefit spending addresses community social needs and is directly tied to the CHNA and aligns with the State Health Improvement Plan (SHIP).

The hospital “shall ensure its community benefits and community-building activities directly address the health needs identified by the applicable CHNA in effect at the time and the population health management objectives, including social determinants of health, contained in the related Implementation Strategy.” Connecticut Office of Health Strategy Certificate of Need Settlement Agreement (Milford/Bridgeport)

In a CON agreement tied to the transfer of assets from Milford Health to Bridgeport Hospital between Yale New Haven Health Services Corp. and Health Quest Systems Inc., the Connecticut Office of Health Strategy (OHS) mandated that the Connecticut hospitals:

Submit to OHS their CHNAs and CHNA Implementation Strategy, which require input from key community stakeholders, health organizations, and local health departments, as well as the use of data and priorities from the SHIP as a framework for the CHNA.
Adopt evidence-based interventions detailed in the Centers for Disease Control and Prevention’s 6/18 initiative and provide information about how patient outcomes directly related to the Implementation Strategy will be measured and reported to the community.
Increase the total dollars spent on community benefits by at least 1 percent every year for the next five years, and ensure that spending and activities directly address the health needs identified by the hospital’s CHNA. The five-year annual 1 percent increase in community benefits spending cannot go towards hospital expenses or include spending on Medicaid, but must be used to address the social determinants of health and the population health needs identified in the CHNA.

The hospital is required to submit documentation to OHS showing “how its community benefit and community building activity expenditures addressed each element identified in the applicable CHNA, with brief narrative explanation of relevant activity for that element, and dollars spent.” These CON requirements require hospitals to show in a public document how they are directly tying community benefit spending to community needs. While CON conditions are time-limited, they demonstrate what is possible when states use their policy levers to maximize community benefits investments. In this way, Connecticut’s CoN work may inform broader state community benefits work beyond the CON process.

Conclusion

Oregon and Connecticut provide examples of how states can go beyond the federal requirements to ensure that hospital community benefit spending is substantial, meets community needs, and addresses state goals in exchange for tax exemptions. To support states in this work, the National Academy for State Health Policy (NASHP) has convened a hospital community benefits workgroup of state officials, supported by the Robert Wood Johnson Foundation and the New England States Consortium Systems Organization. Additional NASHP resources are available in this chart, Hospital Community Benefits Comparison Table for Six New England States, and this infographic, How 10 States Keep the ‘Community’ in Hospitals’ Community Health Needs Assessments.

For information detailing how much specific hospitals invest in community benefits and community building activities, explore this Community Benefit Insight tool.

Support for this work was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the foundation.

New PBM Laws Reflect States’ Targeted Approaches to Curb Prescription Drug Costs

August 12, 2019/in Policy Blogs Cost, Payment, and Delivery Reform, Health System Costs, Medicaid Managed Care, Model Legislation, Prescription Drug Pricing, Quality and Measurement, State Rx Legislative Action /by Sarah Lanford and Maureen Hensley-Quinn

In 2019, states built on the momentum that had been gaining in recent years and passed targeted legislation to address the role harmful pharmacy benefit manager (PBM) business practices play in escalating prescription drug prices. The laws supporting these approaches, described below, give states enforcement mechanisms to ensure that the discounts that PBMs recoup are ultimately used to lower drug and premium costs for consumers.

#NASHPCONF19: New Recipes to Control Rx Pricing
10-11:30 a.m. Thursday, Aug. 22, 2019

New state PBM laws will be among the topics discussed at this session at NASHP’s 32nd Annual State Health Policy Conference, Aug. 21-23 in Chicago.

There is still time to register, learn more here.

During the 2017 and 2018 legislative sessions, states increasingly passed laws focused on PBMs, often referred to as the “middleman” in the drug supply chain. Health plans contract with PBMs to manage their pharmacy benefit, which includes negotiating rebates with manufacturers and ensuring pharmacies have medications to dispense.

As states address prescription drug prices, there have been many questions raised about PBM practices. Where do the negotiated manufacturer rebates go? How much is the PBM keeping versus what is passed along to help consumers pay for prescriptions? Also, what about the differing amounts health plans pay for prescription drugs – compared to the often lower reimbursement amount paid to pharmacies? How much of that “spread in pricing” do PBMs keep as profit? Could opaque PBM payment practices be contributing to the overall high costs of prescription drugs?

Explore NASHP’s Pharmacy Benefit Manager Model Legislation and Resources page for more information.

Last year, Ohio’s state auditor released a report revealing that PBMs charged Medicaid managed care organizations (MCOs) a “spread” of more than 31 percent for generic drugs, which cost the state $208 million – all of which PBMs pocketed as profit. This issue is not unique to Ohio. Lack of defined regulations allow PBMs to pocket portions of manufacturer rebates or use spread pricing models instead of passing negotiated discounts back to health plans and their consumers.

To address those opaque practices, in 2019 several states enacted laws to:

More clearly define PBM practices;
Require transparency of specific prices, costs, and rebates; and
Take steps to explicitly define fiduciary responsibilities of health plans for their contracted PBMs.

Licensure Requirements

To date, 27 states require PBMs to obtain licensure from their states’ departments of insurance prior to operating in the state. This year, Minnesota, South Carolina, West Virginia, and Utah enacted laws to require PBM licensure. Licensure is a critical component of effective PBM regulation because it allows a state to know how many and what entities are operating as PBMs. This also gives the state power to suspend or revoke a license should the PBM break the law or engage in fraudulent activity.

Transparency Requirements

States also passed stronger transparency reporting requirements for PBMs. New York passed and Minnesota enacted measures requiring transparency reporting to both health plans and relevant state agencies. Notably, under the New York bill, a health plan will have access to all financial and utilization information of a PBM in relation to pharmacy benefit management services provided to the plan. Access to a PBM’s financial information will allow health plans in New York to monitor their contracted PBMs for fraudulent activity and deceptive acts. It also empowers health plans to enforce provisions of its contract with a PBM. The measure passed the legislature with broad support and now awaits action by New York Gov. Andrew Cuomo.

The Minnesota law goes beyond other states’ transparency bills by requiring PBMs to submit de-identified claims level information to their plan sponsors. Under this law, PBMs must report any spread collected on a claim, along with the amount paid to the pharmacy for each prescription. The law also requires PBMs give information to plan sponsors that differentiates between payments made to pharmacies owned or controlled by the PBMs and those not affiliated with the PBM. Data reported to plans will highlight any PBM conflicts of interest and deceptive business practices. Health plans and the state can use this data to create a clearer picture of how PBMs make their profits and identify additional actions the state can take to rein in bad practices.

Health Plan Oversight

States are also increasingly focused on requiring health plans to take more responsibility for monitoring the PBMs they contract with. For example, under Maine’s new law, if a health insurance carrier uses a PBM to manage its prescription drug benefits, the carrier is responsible for monitoring all activities performed by the contracted PBM. By tasking carriers with PBM monitoring responsibilities, Maine is leveraging its Bureau of Insurance to enforce these provisions of the law. The law also stipulates that PBMs have a fiduciary duty to their insurance carriers when managing their prescription drug benefits and as such, carriers are empowered to hold PBMs accountable for their financial dealings. This law may be protected from an Employee Retirement Income Security Act of 1974 (ERISA) legal challenge because lawmakers purposefully used an existing definition of “carrier” in state law that imposes requirements on state-regulated insurance carriers only. Therefore, the law does not apply to plans governed by ERISA. (Read Maine Forges New Ground and Enacts Comprehensive Drug Package for more information about Maine’s comprehensive PBM law.)

The New York measure stipulates that in addition to health plans, PBMs have a duty and obligation to covered individuals to perform their services with care, diligence, and professionalism. Under this measure, all funds received by the PBM, including funds derived from spread pricing, must be used on behalf of the health plan and can only be used pursuant to the PBM’s contract with the plan. Medical loss ratio rules require health plans to spend 80 percent of a beneficiary’s premium on medical claims and the remaining 20 percent on overhead expenses, including profits. This means that any manufacturer discounts passed from PBMs to a health plan will be used to lower spending on pharmacy benefits, which will in turn decrease premium costs for beneficiaries.

Medicaid Managed Care Contracts

States are also increasing their Medicaid agencies’ oversight of PBMs. Informed by Ohio’s report last summer, lawmakers included provisions in their budget that require the state to contract with a single PBM for the entire Medicaid managed care program. The “state PBM” will have strict transparency reporting requirements and will be prohibited from requiring a Medicaid recipient to obtain a specialty drug from a specialty pharmacy owned by or associated with that state PBM. This will end the practice of “self direction,” which benefits PBMs but typically increases out-of-pocket costs for consumers. Conflicts of interest language along with transparency requirements limit anti-competitive practices and give state officials more control over how PBMs operate in the Ohio.

Similarly, a new law in Louisiana authorizes its Department of Health to carve out pharmacy services from Medicaid MCO contracts and assume direct responsibility for all pharmacy services. If the department chooses to use a PBM to administer the pharmacy benefit, the PBM can only be reimbursed with a transaction fee and cannot retain any portion of spread pricing or state supplemental rebates. This ensures the state will get all of the discounts the PBM negotiates with drug manufacturers. The transaction fee will be the only payment to the PBM, which prevents it from pocketing a spread or a portion of discounts intended for the state.

States cannot control which new drugs come to market or what their list prices will be, but they can impose Medicaid contracting requirements to ensure PBMs are working in the interest of the state. Through these laws, Ohio and Louisiana can take active roles in monitoring PBM practices and administering pharmacy benefits to ensure protections for the state.

The laws passed during the 2019 legislative session are the result of states’ iterative policymaking processes – lawmakers first work with state agencies to identify problems, build on prior legislation, and then develop legislative solutions. Targeted approaches like the ones highlighted here can help stem drug spending, but PBMs are only one part of the supply chain contributing to rising drug costs. To see all types of legislation to address drug costs, explore NASHP’s state Legislative Tracker and learn about other new laws states have enacted this year.